Arizona’s Major League Baseball team has a new state bond authorization in its pocket as it emerges from the pandemic to resume its traditional pastime of hunting public stadium subsidy.
The state legislature this year granted the Arizona Diamondbacks authority to issue bonds for an anticipated $500 million of improvements to Chase Field in downtown Phoenix.
Although the team has not decided whether it will stay in the downtown venue, team officials said House Bill 2835 provided them the option.
Airman 1st Class Ridge Shan
The team had considered a stadium site off Loop 101 on Native American land, but HB 2835 excludes districts formed by the Indian tribes.
The legislation expands the definition of “theme park districts” to include sports venues and doubles the maximum district bond principal amount to $2 billion.
Stadium districts would be allowed to levy a tax of up to 9% on anything sold at the venue to create a revenue stream for debt service. The Diamondbacks would be required to cover 20%, or $100 million, for the cost of renovations if the district were to issue $400 million of bonds.
Since 2010, the Diamondbacks have partnered with the National Basketball Association’s Phoenix Suns in the Legends Entertainment District, which Chase Fields’s downtown neighbor, the Phoenix Suns Arena.
The Diamondbacks began playing at what was then called Bank One Ballpark in 1998. The $328 million stadium was financed in part by a quarter-cent sales tax.
The Maricopa County Stadium District, which had financed Cactus League spring training facilities for Major League Baseball teams, managed the bond issuance for the stadium.
In 2016, the district was involved in a dispute with the Diamondbacks over stadium improvements the team said were needed. The team wanted the county to pay for the $65 million of repairs it said were needed.
Instead, the county, doing business as the stadium district, reached an agreement to sell the stadium to a real estate group for $60 million. However, the deal fell through and the district remains the owner.
The district’s final debt payment of all of its stadiums came in 2019, leaving it debt free. Auto rental surcharges that had backed the stadium district’s debt went to the Arizona Tourism and Sports Authority.
The Chase Field lease runs through the 2027 season, but a 2018 settlement of a lawsuit allows the Diamondbacks to leave early.
In 2019, the Diamondbacks entertained offers from Las Vegas for a move there, but no deal developed.
After playing without fans through the pandemic year of 2020, the Diamondbacks opened 2021 with a 20,000-per game attendance limit at the 48,633-seat venue. Earlier this month the team announced that ticket restrictions will be lifted starting with Tuesday’s game against the San Francisco Giants.
In Phoenix’s western suburb of Glendale, the region’s NFL team, the Arizona Cardinals, are also looking toward increasing attendance as the 2021 season approaches.
Financing of the Cardinals’ stadium proved more troublesome than that of the Diamondbacks, with the original site of Tempe lost to conflicts with Phoenix Sky Harbor Airport, then halted by a citizen petition in neighboring Mesa.
After rejection by the East Valley, Glendale stepped up. To finance the stadium, voters in Maricopa County in 2000 authorized the Arizona Sports and Tourism Authority to issue more than $300 million of revenue bonds for the $455 million stadium that opened in 2006.
In 2019, AzSTA and stadium bondholders were relieved by a state Supreme Court ruling that the revenues supporting the bonds did not violate the state constitution. After years of litigation, the court affirmed the opinion of the Arizona Court of Appeals, finding again that the Car Rental Surcharge did not violate either the Arizona Constitution or the U.S. Constitution.
The tax of about $2.50 per car rental was approved by county voters in 2000 through Proposition 302 that authorized the Cardinals stadium. The tax was designed to raise more than $1 billion over 30 years. Legal challenges to the tax began shortly after it was imposed. Saban Rent-A-Car was the lead plaintiff to the challenge brought on behalf of rental car companies against the Arizona Department of Revenue.
While the original debt for the Cardinals’ State Farm Stadium is dwindling, questions involving the pandemic linger. Fitch Ratings recently retained a negative outlook on AzSTA’s A rating. The rating applies to $164.5 million of bonds issued in 2012.
Fitch analyst Steve Murray said the outlook “reflects uncertainty regarding the timing and strength of the rebound of the tourism industry in Phoenix, and the corresponding recovery in pledged tourism tax revenues.
“The rating is also influenced by the asymmetric risk of a single site (State Farm Stadium) and the narrower pledge of facility revenues from 2032-2036 that are potentially volatile,” he added.
Fiscal year 2020 pledged tourism tax and facility revenues totaled $50 million, down 23% from the prior year as the pandemic-induced economic contraction began. The stadium was closed to events beginning March 16, 2020, keeping operational spending levels generally in line with original budget projections.
“The 23% decline was substantial given the facility was closed for only a few months during fiscal 2020,” Murray said.
In its budget for the current fiscal year, AzSTA anticipated covering a nearly $1.7 million shortfall in senior-lien debt service with operating funds. AzSTA expects fiscal 2021 pledged revenues of roughly $31 million, nearly 40% below the fiscal 2020 and 52% below the fiscal 2019 pre-pandemic total, Fitch notes.
“The preliminary fiscal 2022 budget includes another decline in pledged revenues to $26 million, as management currently is anticipating only a gradual recovery in stadium event activity and pledged revenues,” Murray said. “Recent reports from cities in the Phoenix metropolitan area regarding sales tax revenue performance suggest a fairly strong rebound in economic activity is underway, although recovery in the hospitality sector is expected to be slower.”
AzSTA is considering a refunding issue for the outstanding 2012 bonds next year as the 10-year call date approaches, according to spokeswoman Kristen Pflipsen. Meanwhile, bookings are on the comeback trail.
“Events are returning to the stadium and tourism is expected to continue a steady recovery,” Pflipsen said.